Synergy has become popular vernacular across boardrooms, conferences, and certainly touted by motivational speakers in the business community. So much so, that many books have been penned on the topic. There are books available on synergy relating to food, clothing, fitness, and physical and mental health to name a few, so the concept has certainly caught on!
I believe in the concept of synergy, and I am a firm believer in applying the theory of synergy to personal finance. As a holistic (one who sees the entire picture) financial advisor, I see the benefits in my clients’ progress because of synergic effects.
How to create personal financial synergy?
Financial synergy can only be achieved through connectivity. Think in terms of Sir Isaac Newton’s Third Law: every action has an equal and opposite reaction (My seventh grade teacher would be proud!). Personal finance is similar to the world of physics in this way. Every financial move or decision creates a reaction in another area of your financial life. The key is to create positive reactions and not negative.
For example, buying a home that is too expensive will create negative synergy to your cash flow. It will create a scenario that will produce a negative snowball of reactions that can lead to a deep financial hole and possibly irreparable financial damage…..maybe even bankruptcy.
While negative synergy can create a downward spiral, positive financial synergy can spur tremendous financial growth. A fine example we can all relate to is saving for retirement. Money contributed into a 401k is tax free; therefore, the contributions will reduce your tax bill. This is positive synergy. Let’s continue the example, the excess funds created by the tax reduction from the initial 401k contribution can now be contributed into the 401k. The more money contributed the greater the tax reduction. The greater the tax reduction the more cash is freed up. This is just one example of financial synergy between two areas of personal finance: taxes and retirement.
There are many areas involved in personal finance. Estate planning, retirement, taxes, insurance, cash flow, goal setting, investments, college planning, retirement planning are most of the topics involved with personal finance, but not all. Imagine the traction that can be generated by constructing a financial plan by integrating all of the pieces. Imagine the power and efficiency of a financial plan created using synergic strategies between the aforementioned topics. The positive momentum becomes exponential!
Often families may employ various professionals to handle their personal finances. A CPA takes on taxes, and a broker covers the investments, while an attorney handles estate planning. Unless these professionals communicate effectively the power of financial synergy is lost. The right hand must know what the left hand is doing! Whether a family uses various professionals or navigates the financial landscape solo, continuity, connectivity, and efficient synergic decisions are a must for financial success.
Effective financial planning increases efficiencies across all financial areas, which is synergy. If you feel you are leaving money on the table somewhere in your financial world or feel a lack of connectivity, you should contact a financial advisor. Some of the brightest minds in synergic financial planning can be found through The Alliance of Cambridge Advisors (an organization in which I am a member). Check out their website at http://www.acaplanners.org/ .
Internal Revenue Service (IRS) rules of practice require me to inform you that any tax advice included in this communication is not intended to be used, and cannot be used, for the purpose of avoiding tax penalties by the IRS.
Tuesday, October 27, 2009
Thursday, October 22, 2009
Buyer's Remorse
Have you ever experienced buyer’s remorse? You bought something and later regretted making the purchase. I think we all have made this mistake. Hopefully, most of our regrets are for purchases with only a zero or two involved and not involving thousands of dollars.
Unfortunately, the financial world is an area that leaves many folks confused and misguided when it comes to fees and costs. As with any wise consumer, financial product/advice consumers should perform their due diligence to understand the cost of the product or advice to be purchased. Some financial products on the surface may come across as costing the consumer little or nothing, but, after closer inspection, the costs or fees may be exorbitant. For example, there are commissioned advisors who sell loaded funds (funds with a purchase fee attached), but some of these advisors may not disclose to the client that the fee may be withdrawn from their investment account balance. The client may only notice after opening their investment statement and learning their balance is immediately 3-5% lower or worse!
Why is it important to know the costs and fees?
Most often hidden charges are withdrawn from the underlying investment. The largest culprits are insurance and commissioned-based investment products. Let’s look at a hypothetical example: A client purchases a couple of mutual funds with $100,000 that dear Aunt Ida passed on in her will. The front load fee is 5%. This means the after-fee investment goes from $100,000 to $95,000 right off the bat! In essence, the cost to purchase those two funds is $5000! If invested at 8% a year for 20 years, $5000 would grow to almost $25,000!
The same scenario can be played out for insurance based products such as annuities, as well as investment-based life insurance products. For this reason, I rarely recommend insurance based products that are tied to investment returns. Why, because it is difficult to understand the true cost of ownership. Sometimes it is even difficult to understand the product itself, and, if you don’t understand what you are buying, maybe you shouldn’t own it.
As a consumer, knowledge is key! If you are confused as to the cost of doing business with a financial advisor or insurance agent, simply ask. What you don’t know could hurt you! Don’t let buyer’s remorse impact your ability to reach your financial goals. Understand the true cost of ownership, and make sure hidden fees won’t leave you in regret.
Unfortunately, the financial world is an area that leaves many folks confused and misguided when it comes to fees and costs. As with any wise consumer, financial product/advice consumers should perform their due diligence to understand the cost of the product or advice to be purchased. Some financial products on the surface may come across as costing the consumer little or nothing, but, after closer inspection, the costs or fees may be exorbitant. For example, there are commissioned advisors who sell loaded funds (funds with a purchase fee attached), but some of these advisors may not disclose to the client that the fee may be withdrawn from their investment account balance. The client may only notice after opening their investment statement and learning their balance is immediately 3-5% lower or worse!
Why is it important to know the costs and fees?
Most often hidden charges are withdrawn from the underlying investment. The largest culprits are insurance and commissioned-based investment products. Let’s look at a hypothetical example: A client purchases a couple of mutual funds with $100,000 that dear Aunt Ida passed on in her will. The front load fee is 5%. This means the after-fee investment goes from $100,000 to $95,000 right off the bat! In essence, the cost to purchase those two funds is $5000! If invested at 8% a year for 20 years, $5000 would grow to almost $25,000!
The same scenario can be played out for insurance based products such as annuities, as well as investment-based life insurance products. For this reason, I rarely recommend insurance based products that are tied to investment returns. Why, because it is difficult to understand the true cost of ownership. Sometimes it is even difficult to understand the product itself, and, if you don’t understand what you are buying, maybe you shouldn’t own it.
As a consumer, knowledge is key! If you are confused as to the cost of doing business with a financial advisor or insurance agent, simply ask. What you don’t know could hurt you! Don’t let buyer’s remorse impact your ability to reach your financial goals. Understand the true cost of ownership, and make sure hidden fees won’t leave you in regret.
Wednesday, October 14, 2009
Goal Setting!
The title of this post may lead you to believe that I am going to deliver strategies pinned to outlining and achieving goals of fame and fortune. Not so, for this article will hopefully help you to see what is really important in your life.
One of the most exciting meetings that I offer to my clients is the goal setting meeting. During this appointment I have the privilege to hear my clients’ dreams, wishes, and desires. This is a wonderful opportunity to search for continuity between couples and their goals, as well as explore what people really dream about.
After years of listening to my clients’ goals and dreams, their responses always seem to pleasantly surprise me. The popular perception that real goals are lofty aspirations of wealth and riches is just not the case; at least not in my world. Most folk’s true desires are often very simple.
It has been fascinating for me to learn what really excites people is the connectivity to family and friends and not flashy cars or opulent mansions. Relationships and endearing memories are what people really desire! Money can certainly help facilitate relationships and create memories, but time is the only real solution to building relationships and creating lasting memories. Creating a portfolio of wealth is not something we can fully control. Sure we can and do develop investment strategies that are time tested and built on fundamentally strong ideas, but ultimately we cannot control what the market is going to do. What we can control is our time!
We all have responsibilities and obligations…many to our careers, but again we can still control what we do with our time. I encourage us all to take the time to explore what (or should I say who) is really important in our life. I often tell my clients to find their “it.” Find what really brings you joy. It could be as simple as walks with your spouse, coaching your child’s sports team, or golf with friends. Once you understand what really drives your dreams, we can then focus on getting you there. Again, money can help facilitate this, but often money is not the driving force.
We live in a society of over-indulgence and consumerism. We have seen firsthand the devastation created by greed with the collapse of the real estate market and this recent economic downturn. Don’t get me wrong, I enjoy the finer things in life as much as the next guy. Society programs us to want more when we often have what we want right in front of us.
Take the time to review your goals and dreams. Explore what really brings you joy. Focus your efforts, including financial efforts, in this direction and you cannot miss. Again, it is important to view your financial life as a giant puzzle where the individual aspects (taxes, investments, insurance…etc.) create your big financial picture. Your goals should be driven by what brings you true joy and not by consumerism or society.
One of the most exciting meetings that I offer to my clients is the goal setting meeting. During this appointment I have the privilege to hear my clients’ dreams, wishes, and desires. This is a wonderful opportunity to search for continuity between couples and their goals, as well as explore what people really dream about.
After years of listening to my clients’ goals and dreams, their responses always seem to pleasantly surprise me. The popular perception that real goals are lofty aspirations of wealth and riches is just not the case; at least not in my world. Most folk’s true desires are often very simple.
It has been fascinating for me to learn what really excites people is the connectivity to family and friends and not flashy cars or opulent mansions. Relationships and endearing memories are what people really desire! Money can certainly help facilitate relationships and create memories, but time is the only real solution to building relationships and creating lasting memories. Creating a portfolio of wealth is not something we can fully control. Sure we can and do develop investment strategies that are time tested and built on fundamentally strong ideas, but ultimately we cannot control what the market is going to do. What we can control is our time!
We all have responsibilities and obligations…many to our careers, but again we can still control what we do with our time. I encourage us all to take the time to explore what (or should I say who) is really important in our life. I often tell my clients to find their “it.” Find what really brings you joy. It could be as simple as walks with your spouse, coaching your child’s sports team, or golf with friends. Once you understand what really drives your dreams, we can then focus on getting you there. Again, money can help facilitate this, but often money is not the driving force.
We live in a society of over-indulgence and consumerism. We have seen firsthand the devastation created by greed with the collapse of the real estate market and this recent economic downturn. Don’t get me wrong, I enjoy the finer things in life as much as the next guy. Society programs us to want more when we often have what we want right in front of us.
Take the time to review your goals and dreams. Explore what really brings you joy. Focus your efforts, including financial efforts, in this direction and you cannot miss. Again, it is important to view your financial life as a giant puzzle where the individual aspects (taxes, investments, insurance…etc.) create your big financial picture. Your goals should be driven by what brings you true joy and not by consumerism or society.
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